The government’s decision to postpone the follow-on public offering of trading company MMTC Ltd in 2010 has cost it dearly. While the market has been more or less flat in the past three years, MMTC’s value has reduced considerably. Of course, one can’t say this based on the publicly traded price of MMTC shares. With a floating stock of just 0.67% of the total equity capital, the company’s traded price has been out of whack for quite some time now.

In the past three years, the shares have fallen by about 85% to Rs.210. And still, the government had to apply a huge discount of over 70% to the current traded price to attract investors for the company’s offer for sale (OFS) on Thursday. The floor price has been set at Rs.60. If the company’s traded price has always been far removed from business fundamentals, how can one say the government could have raised a much higher amount if it had gone ahead with the follow-on offer in 2010? This is simply because MMTC enjoyed much higher profits three years ago. In financial year 2009-10, it reported a net profit of Rs.216 crore. In the year ended March, the company’s adjusted profit of a little over Rs.100 crore was less than half those levels. Assuming the same price to earnings multiple, the government could have raised at least double the amount it will raise now.

MMTC’s profits have fallen sharply mainly because of the ban on iron mining in Karnataka, strictures on iron ore exports and increased railway freight for iron ore. Segment profit from minerals and iron ore stood at Rs.120 crore in FY10, and merely Rs.45 crore in FY13. The company’s other large profit centre is imports of precious metals, primarily gold. This business has been hit hard by government moves to curb gold imports. In FY13, revenues from the division fell by over 70%. With the government’s renewed call to citizens to curb gold purchases, it’s quite unlikely that MMTC, majority owned by the government, will increase its gold imports with gusto. While these two businesses have suffered, other segments such as imports of coal and farm products such as edible oils have done reasonably well and have provided the company’s profits the necessary cushion.

Even so, the company’s valuations look expensive inspite of the government’s seemingly discounted offer price of Rs.60 per share. This results in an equity valuation of Rs.6,000 crore and a price to earnings ratio of